Philip Hammond said market volatility meant it was not the right time for a retail offer.
Photograph: Carl Court/Getty Images

Philip Hammond has abandoned his predecessor’s plan to offer the public cut-price shares in Lloyds Banking Group by announcing he will sell off the government’s remaining 9% stake in the bailed-out bank on the stock market.

Hammond will now sell shares directly into the market with the aim of getting rid of the government’s stake in its entirety in the next 12 months. The move means that the shares will be sold below the 73.6p average price at which taxpayers bought a 43% stake in the bank for £20.3bn at the time of the 2008 crisis. The shares are trading around 53p.

“I have listened to the experts. Ongoing market volatility means it is not the right time for a retail offer,” Hammond said.

“Returning Lloyds to the private sector is in the interests of the bank, taxpayers and the country as a whole. That is why exiting our stake in Lloyds in an orderly way and at the best possible price is one of my top priorities as chancellor,” he said.

The Treasury said it would not make a loss because it had already raised about £16.9bn from previous sell-offs of Lloyds shares.

“Our plan will get back all the cash taxpayers invested in Lloyds during the financial crisis and leave the bank in a better place to continue the crucial role it plays in supporting individuals, families and businesses up and down the UK,” Hammond said.

He said that the sell off RBS could not take place until the bank had sorted out of the spin off 300 branches as mandated by the EU as penalty for state aid. Neither could the shares be sold until RBS had reached a settlement a long-running investigation by the US Department of Justice into the mis-selling of mortgage bonds. This is similar to the case currently hammering confidence in Deutsche Bank.

The Treasury said investment bankers at Morgan Stanley would instigate a “trading plan … to effect a measured and orderly sell down of shares” which would begin on Friday and end no later than 6 October 2017.

Financial firms had hoped to be involved in the sell-off and 350,000 potential investors had registered with Hargreaves Lansdown Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: “This would have been an opportunity to not only raise money for the Treasury but also to democratise retail investing.

“Share offers of this nature are an excellent mechanism for developing consumer interest in long-term investments, so this decision to place shares via an institution hardly seems in keeping with the new government’s mantra of standing up for ordinary people.”